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European Bond Research – April 23, 2019

Posted on April 23, 2019
EUROZONE PRIVATE SECTOR GROWTH DECELERATES IN APRIL as manufacturing contracts for the second consecutive month.  New export orders collapse for the seventh straight month alongside services PMI dipping to a seventh month low of 55.6.  Retail sales rose to a four-month high in March growing by 1.1 percent month over month, year over year sales improved 6.7 percent. The 10-year Gilt rose 1.7 basis points. FTSE 100 +0.76%, German DAX +0.15%, CAC 40 +0.13%, STOXX Europe 600+0.17%

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ROYAL BANK OF SCOTLAND (RBC) EXPANDED ITS FUNDING BY TWOFOLD to assist small businesses, increasing the total to 6 billion pounds.  The original purpose of the funding was to “Brexit-proof” businesses, however, the initial purpose has shifted.  Mike Slevin, head of capital management at NatWest stated: “It’s really about demand from growth sectors in the UK economy” including green energy and technology.  U.K. household finance index moved in tandem with weak April data suggesting a downbeat consumer sentiment despite an uptick in the perception of job security.   ADI (Advantage Data Inc.) extensive corporate-bond index data showed a net daily yield increment for high-grade versus high-yield constituents. High-grade bonds edged out high-yield debt as of 3 PM, London time.  Among European high-grade bonds showing a concurrence of top price gains at appreciable volumes traded,  HSBC Holdings PLC (USD) 4.25% 8/18/2025 made some analysts’ ‘Conviction Buy’ lists. (See the chart for HSBC Holdings PLC bonds below). Corey Mahoney (cmahoney@advantagedata.com).

Sovereign-Debt Snapshot

Country Maturity (Y) Yield (%) Previous (%) Spread (bp)
Australia 10 1.960 1.960 -62.1
Belgium 10 0.462 0.462 -211.8
France 10 0.370 0.370 -221.0
Germany 10 0.026 0.026 -255.4
Italy 10 2.451 2.451 -12.9
Japan 10 -0.026 -0.026 -260.6
Netherlands 10 0.102 0.102 -247.8
Portugal 10 1.166 1.166 -141.4
Spain 10 1.061 1.061 -151.9
Sweden 10 0.275 0.275 -230.6
U.K. 10 1.198 1.198 -138.2
U.S. 10 2.580 2.564

Credit-Default Swap Market

LATEST NEWS: Top moves, sovereign tighteners (5Y): France 27 bp and UK 28 bp. Sovereign wideners (5Y): Korea 31 bp and Ireland 31 bp.

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New Issuance

New Issues New Issues [Continued]
1. Erste Group Bank AG (EUR) 0.4% 5/7/2034 (04/22/2019): 50MM Senior Unsecured Notes, Price at Issuance 100, Yielding .4%.

2. Davide Campari-Milano SPA (EUR) 1.655% 4/30/2024 (04/23/2019): 150MM Senior Unsecured Notes, Price at Issuance 100, Yielding 1.66%.

ADI Indexes

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DATA CHECK:

iShares Core EUR UCITS iShares Euro High Yield UCITS
NAV as of 04/23/2019, 131.68 NAV as of 04/23/2019, 104.06
Daily NAV Change (%) -0.07% Daily NAV Change (%) +0.05%

OVERALL EUROPEAN CREDIT MARKET:
The euro-zone economy shows signs of positive momentum, although conditions are expected to deteriorate hindered by the termination of quantitative easing, weakening credit rating quality, and uncertainty regarding the outcome of Brexit. Closely watched indicators and rates:

  • Eurostat’s unemployment ratecurrently 7.8% (seasonally adjusted, February 2019)
  • Eurostat’s quarterly GDP: 0.2% (2018 Q3 Final)
  • 6-month Euribor: current value –0.232%, as of 04/18/2019

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